A wealth tax wouldn’t make the poor wealthier

One of these strange but true things. A wealth tax wouldn’t make the less wealthy wealthier. Apologies for making heads explode and all that but this is, in fact, true.

When we tax richer people on their income and give it to poorer people as an addition to their income then those poorer people are of course richer. They’ve got more cash, have a higher income. We include this in our calculations of income inequality too, as we should. Even those measures of relative poverty are after taxes and benefits.

This is entirely separate from whether we should be doing this, should not be, are damaging the economy by doing so and all that. It’s just the observation that we do count the money given to top up in the incomes of the poor when we measure income by poverty.

We do not do this with wealth. This is something that it’s important to understand when people chunter on about wealth inequality and how, therefore, we’ve got to tax the really wealthy in order to redistribute it. For example, the JRF:

The average family in the poorest 10% of families has negative net wealth (such as their debts exceed their assets) (Advani et al., 2021). The bottom 2% have just £2,500 (including household physical assets). At least half of the bottom 10% only held wealth in physical assets (with a mean value of £8,000)

We could (well, we couldn’t, but as an exercise in logic) tax all the wealth off all the rich and ship that off to the poorer in goods and services, income tops ups and so on. This would change that wealth distribution to the poor by not one iota, not one pound nor even penny. Because we don’t count as wealth the things that are sent to the poor via government action.

Formally, from Saez and Zucman:

Our definition of wealth includes all pension wealth— whether held in individual retirement accounts, or through pension funds and life insurance companies—with the exception of Social Security and unfunded defined benefit pensions. Although Social Security matters for saving decisions, the same is true for all promises of future government transfers. Including Social Security in wealth would thus call for including the present value of future Medicare benefits, future government education spending for one’s children, etc., net of future taxes. It is not clear where to stop, and such computations are inherently fragile because of the lack of observable market prices for these types of assets. Unfunded defined benefit pensions are promises of future payments that are not backed by actual wealth. The vast majority (94% in 2013) of unfunded pension entitlements are for government employees (federal and local), thus are conceptually similar to promises of future government transfers, and just like those are better excluded from wealth.

The NHS is not counted as wealth, free education is not, the benefits system is not wealth, not just the state pension but a civil service pension - a doctors pension! - is not wealth. But all of these things are wealth. And that they are funded by a progressive taxation system - as they are - means that we already have a considerable redistribution of wealth in this country.

It’s very easy indeed to tot up that absolutely every citizen in the country has a half million or so of wealth. Free lifetime healthcare is perhaps £250,000 - that’s, -ish, what it costs to provide. Free education per child costs £90,000 or so - per child again. The state pension has an actuarial value of £150,000 or so. And so on. Simply by being born British people have a half million in wealth before we think of the insurance value of the welfare state and so on.

But, as above, all that wealth is not counted when we discuss the wealth distribution. Which does mean that if we tax the wealthy harder to spend on more of these things for the less wealthy then, by the measurement system we use, we’ve not made those poorer any wealthier at all. Which isn’t a good way to be doing the counting.

Of course we’re against a wealth tax for that’s an idiot idea. But moving from opinion, however based, to irrefutable fact. We do not measure wealth properly at present, therefore we don’t measure wealth inequality correctly. Which seems like the first thing we need to be doing if we’re going to then discuss whether we want to change that wealth distribution.

For, as above, it really is true that given the way we measure these things we could double pensions, triple the NHS and cost every school in the country at Eton levels and we’d not have increased the wealth of those who get pensions, health care or education by one iota nor penny. Which is not just insane it’s misleading.

Tim Worstall

The terrors of the secretive international court system

The investor state dispute settlement system courts, ISDS, such a terror to the spread of democracy and all that is good and holy around the world:

More than $100bn of public money has been awarded to private investors in investor-state dispute settlement (ISDS) courts, according to the most comprehensive analysis yet.

The controversial arbitration system which allows corporations to sue governments for compensation over decisions they argue affect their profits is largely carried out behind closed doors, with some judgments kept secret. But, according to a global ISDS tracker which launches today, $114bn has so far been paid out of the public purse to investors – about as much as rich nations provided in climate aid in 2022.

Fossil fuel companies have been by far the biggest beneficiaries of the corporate panels, raking in $80.21bn since 1998, according to the site. If current trends continue, at least another $48bn will be disbursed to settle cases currently under litigation, the research finds.

So, we thought we’d have a look at this claim. And please do note what we’re doing - we’re using their evidence, following their facts. We’re not introducing anything else, not handwaving about how capitalists are always right or anything. These are their examples.

From their website the top 5 cases they’re complaining about.

Veteran and Hulley, two cases stemming from the Yukos case. Mikhail Khordokovsky was an oil billionaire with political ambitions. Vladimir Putin actually had political power. Yukos was driven bankrupt. Ah well, such things happen.

Conoco/Venezuela, the Bolivarian state nationalised, without compensation, oil fields.

Repsol/Argentina, the Peronist state nationalsed the oil company without compensation.

Eureko/Poland. Not one we know much about but apparently about the privatisation of an insurance company. Did government keep to the contract it had agreed?

All of these are about whether government kept to a contract that government signed. Might be a contract through a treaty and all that but they really are all about well, did government keep to its word? And if you want to have a court case claiming that a government didn’t then not being in a court controlled by that government seems to be a good idea.

Which is what ISDS is. Just like when we accuse our own government of breaching our human rights, it’s off to the European Court of Human Rights we go - a court not controlled by the government we’re accusing.

Here the accusation is - in colloquial language, in the sense of “But, but, I just brushed against the table and it fell into my pocket, honest, Constable!” and on up - governments nicked this property. So, which court, why and how, does anyone use to test this proposition that the nicking was illegal?

And why would anyone complain about people being able to do so? Our assumption is that some people don’t like the idea that anything should stand in the way of governments being able to nick stuff. A very odd idea to hold we think but there we are, part of that glorious human variability.

David Boaz 1953-2024

Eammon Butler

Colleagues and I are sad to learn of the death of our good friend and fellow freedom-fighter David Boaz, Distinguished Senior Fellow and former Executive Vice President of the Cato Institute.

He will of course be remembered for his many books, notably Libertarianism: A Primer (1997), which set out the principles of libertarianism and justified their adoption. In similar vein, he also published The Libertarian Reader, which brought together ideas and articles on libertarianism from a wide variety of sources, and The Libertarian Mind (2015), described as a ‘manifesto for freedom’. And as the head of Cato’s output for many years, he also produced Handbook publications designed to guide Washington policymakers on sound economic and social policy, and oversaw the Cato Journal.

David relished public debate, bringing attention to controversial libertarian ideas such as the decriminalisation of drugs. His articles appeared in the major US newspapers such as The Wall Street Journal, The New York Times and The Washington Post, as well as leading magazines such as National Review and New Guard, of which he was a former editor. He was a feisty and penetratingly intelligent debater in TV and radio discussions such as CNN’s Crossfire and ABC’s Politically Incorrect. He conducted such interviews with characteristic charm and cheerfulness, even in his last months when he was undergoing medical treatment for cancer.

David joined Cato in 1981 after being Executive Director of the Council for a Competitive Economy. He quickly made his mark and became a mainstay — perhaps the mainstay — of the organisation. Always welcoming and full of ideas, and ever critiquing the latest nonsense to emerge from Capitol Hill or the bureaucracy, he drew countless numbers of people, particularly students, into the freedom movement. He encouraged and supported the intellectual progress of many who would go on to become significant

This just won’t work

….said Great British Energy would be headquartered in Scotland and invest in community wind and solar projects, as well as new technologies such as floating offshore wind, hydrogen, and carbon capture and storage. The company is the flagship of …..’s green energy pledge to roll out 100 per cent renewable electricity by 2030.

Simply not something that will work whichever party it comes from in this electoral period. We have 5.5 years until 2030. That’s all. We also have a planning system which takes years to approve of anything. Therefore we are not going to have a new, or revamped, electricity system in 5.5 years. It’s simply not going to happen.

That’s before we get to all the thoughts about new technologies. We’d certainly not be able to get new nuclear by 2030, offshore wind let alone floating won’t build out fast enough and so on.

This isn’t to just parp at an electoral claim, nor is it to say that a renewables driven system is a bad idea (it might be but that’s for another day). It’s to insist that the British planning system means that radical changes like this simply are not possible. Further, if we do want to have radical changes - we think sorting out the housing problem would be a damn good idea for example - then it’s that planning system that has to be sorted out.

Root causes really are root causes. The reason we can’t get anything done in Britain is because the law makes it incredibly hard to get anything done in Britain. Therefore if we wish to return to being a society where things can be done we’ve got to change the law about doing things.

Abolish the Town and Country Planning Act 1947 and successors, proper abolish and blow up - kablooie.

Only then will we be able to save the planet or, even, have something better than hovels to live in.

Election Wishlist - a Special Series on How to Reboot Britain

With a surprise General Election called, significantly accelerating timelines, election manifesto drafting has become an urgent task across political parties. 

Over the coming weeks we are doing a special series of blogs to explore some of the biggest challenges and opportunities facing the UK. It will offer a radical “wish list” for policy makers of what to do, and by implication, what not to do.

“It’s the economy, stupid”

The UK, along with much of Europe, is in decline. Following the 90’s, similar stagnation in Japan was called a “lost decade”. Having failed to reverse this trend, Japan has since suffered from three lost decades. Unfortunately, things are not much better in the UK. 

After almost two decades of stagnation, Britons are rightly frustrated. According to ASI analysis of World Bank data, the UK’s real GDP per capita  only rose 1.3% over the seventeen years between our 2007 peak and 2024, in total. By comparison in the seventeen years preceding 2007, it grew 141%.

For many, particularly younger generations, they are actually worse off even in real terms, as the distribution of these tiny (per capita) gains are not evenly distributed. Younger generations have particularly seen their rents rise significantly faster than their wages.

While inflation has now returned to normal levels, it reached its highest peak since 1980. Despite the denial of the Bank of England, inflation was not a transitory phenomena, and it was avoidable.

The tax burden has been consistently rising too. Inflation-driven fiscal drag and other tax rises have undermined claims of tax cuts. So while Britons have seen their incomes stagnate, taxes have risen.

“It’s the economy, stupid” became the mantra of Clinton’s 1992 U.S. presidential election. Similarly, the “Keys to the White House” prediction system uses the short-term economy and long-term economy as two key checklist items to assess the situation of the country ahead of an election. Political fortunes can rise and fall for many reasons. While other factors are also important, including the relative charisma of candidates, foreign policy outcomes, social conditions and perhaps even the campaigns themselves, elections are heavily influenced by economic circumstances. 

Leadership not Point polling

More broadly, voters over time judge based on outcomes and whether they feel the country has been governed well. Polling provides a diagnosis as to what is electorally popular, However, polling topics in isolation is not the path to long term success. It ignores the salience of policies or their long term impact.

Popular policies may not be effective policies - the public look for leadership and judge outcomes too. Slavish devotion to point polls can lead to vacuous policies that distract Government or worse, to bad policies. Bad policies deliver bad outcomes, and bad outcomes are unpopular. By contrast, some good policies may be unpopular in the short term, but if they delivery prosperity, they can be rewarded electorally long term, as Thatcher found with her three successive electoral victories.

So, while this series offers some reflections on the electoral feasibility of its recommendations, its primary focus is on what policy makers ought to do, rather than on what will deliver short term popularity alone.

Crisis of collectivism not capitalism

Today our politics is plagued by corporate cronyism (interventions to support special interests), de-growth (policies that hinder growth), vetocracy (blocking development of all kinds), and safetyism (risk aversion). 

The common theme is the destruction of the price mechanism, and decision making guided by the state rather then the markets. Collectivism has won the day, not as a radical top down plan or through ownership of the means of production, but through a steady expansion of the frontiers of the state across almost all domains. 

Decline is not an inevitability. Things do not have to be this way. A brighter future for Britain is possible. The solutions are already known to us, and have often been proven to work in the real word.

The path to restoration lies in re-embracing the power of markets, promoting innovation, protecting our free society, and defending the rule of law at home and abroad.

This series will explain how across key areas of government.

These debt numbers don’t add up

But then given the source we didn’t really expect them to:

Debt payments by the 50 countries most vulnerable to the climate crisis have doubled since the start of the coronavirus pandemic and now stand at their highest level in more than three decades, campaigners have warned.

The Debt Justice charity said countries at the highest risk of being affected by global heating were paying 15.5% of government revenues to external creditors – up from less than 8% before Covid-19 and 4% at their lowest recent point in 2010.

The report is here and - at least as far as we can track the numbers back - they’re comparing all foreign debt payment with government only revenues. Which is very apples and oranges. The government does not have to pay for privately contracted debt so a comparison with government revenues is meaningless. But, well, if you want to count up to big and scary numbers that might be what you have to do.

However, basic numeracy aside there’s a much more interesting point here. Which is that the list of the 50 climate vulnerable countries is a pretty good recount of the 50 poorest places on Earth. Which gives us a plan to deal with climate vulnerability - economic growth.

Which is excellent, so we should be lending lots to, investing more in, those poor places so that they can grow and become less vulnerable to climate change.

Sounds like a plan to us, economic growth for the win.

Tax the rich to provide public goods!

In one of those odd happenstances we agree with The Guardian here:

G20 countries will discuss proposals to make the world’s wealthiest individuals pay more towards funding public goods. The debate is overdue.

Well, there’s certainly a reasonable point there. We institute government in order to gain the public goods we cannot gain in any other way. That doesn’t necessarily mean that government must provide the public goods, only that government must do something to make sure the public goods are provided. The US insists children must be vaccinated to be able to attend school. The NHS provides childhood vaccinations directly. There could indeed be differences, at the margin, between those two methods but both do provide that public good desired, herd immunity (no, vaccinations are not a public good, herd immunity is).

We have from Adam Smith that taxation “more than in proportion” to income is not so very great an imposition. We even have an interesting example of a public good given by Smith. Living in basically literate and numerate society probably is such a public good and therefore tax subsidy - at the least - to primary schooling could well be justified. As and when we return to having primary schools that produce literacy and numeracy we should definitely think about it.

But it’s also possible to differ. For this is then used to argue for a wealth tax - a terribly bad idea. But also, The Guardian links through to a piece giving us a definition of the public goods they mean:

Higher tax rates for the wealthy kept inequality in check and helped fund the creation of social safety nets like Medicare, Medicaid and food stamps.

The definition of a public good is something non-rivalrous and non-excludable. This is why there must be - or it can be justified at least - government action in the provision. Because without rivalry and excludability it’s very difficult indeed to make a profit and therefore there’s a good chance that the item will be underprovided by a capitalist and or free market system. Note the “good chance” there, it’s not an absolute proof.

OK - but Medicare, Medicaid, food stamps, are not public goods. People are denied access to them each and every day - excludability. They’re also rivalrous as well, my hip replacement is not your one. We’re decidedly unconvinced that greater equality is even good let alone a public one.

Sure, all of these things can be argued for. As good for the public, goods for the public even, but that’s not the same as a public good. Therefore the argument The Guardian is reaching for - government is for producing public goods, the rich should pay more than in proportion - doesn’t work because they want to spend the looted cash on things that aren’t public goods.

As well as wealth taxation being a seriously bad idea anyway for the usual deadweight costs reasons.

Equalising Capital Gains Tax means abolishing Corporation Tax - an excellent idea

We’re told, in The Observer, this:

There is an overwhelming economic and ethical case for higher taxes on wealth and for taxing capital gains at the same rate as income, not least the soaring levels of wealth inequality in Britain.

We’re really, really, uncertain that there are soaring levels of wealth inequality in Britain. The usual calculations don’t take account of lifetime effects and given that the main sources of household wealth are pensions and housing equity that makes them all an entire nonsense.

We’re also really very certain that any capital gains tax rate has to have some allowance for purely inflationary gains. That can be through a different rate or through indexation. We’re then deeply uncertain that adding in indexation to an equalised rate would increase the revenue collected. The current system of a lower rate without indexation might collect around the same amount that is - that was the claim when the rate was lowered and indexation abolished after all.

But there’s another issue here. Corporation tax.

Now, yes, it’s true that it’s the corporation that pays that tax. But we all know that the incidence of the tax is not upon the corporation for corporations are not natural people and all tax makes the wallet of some natural person - some real live human being - lighter. The study of tax incidence is whose wallet gets lighter from this specific tax?

Estimates for the UK say that perhaps 50% of the incidence is upon shareholders, 50% upon all workers in the economy that now has lower levels of investment as a result of the tax upon investing successfully. That’s a rather free market, classically liberal, estimate, put forward by, well, people like us actually. Rather more leftish estimates are of 20%, 30% on the workers, the rest on the shareholders. Real proper lefties will shriek that of course the b’stard capitalists pay it all.

We can note that the work of Joe Stiglitz and Tony Atkinson points out that the incidence of a tax can be over 100% - the economic costs of the tax in burdens bourne are higher than the revenue raised by the tax. We can also point out that we acknowledge this issue in our taxation of dividends. Corporation tax is collected at the corporate level, it is that tax plus the dividend tax which approximates to the standard income tax levels for the gross annual income received.

OK, so corporation tax is paid by shareholders. Therefore if we are to tax gains from shares equally to income from labour then we must have a capital gains tax rate which allows for that tax already captured at the corporate level.

The only alternative to this is to abolish corporation tax. Then we can indeed have dividend and CGT rates (with CGT, we’d still need that indexation) the same as those upon labour incomes.

Note what we’ve done here. We’ve not made any of the deeper economic arguments about not taxing investment because we prefer capitalists. Nor because investment’s a good thing that makes the future richer. Nor are we allowing that idiot mistake of thinking that government will invest better than people deploying their own money - the argument for taxing the capitalists to invest.

We’re simply taking people at their word. They want equal rates for income tax and capital gains. OK - but there’s already a tax upon corporate incomes. If we want equal headline rates then we’ve got to abolish that other tax first.

Now, we do think that abolishing corporation tax is an excellent idea for all the usual deadweight reasons. But we’re considerably doubtful that doing that plus equalising the dividend and CGT rates is going to be revenue enhancing. In fact, we’d insist rather strongly that it wouldn't be.

And here’s the thing. How many of those making this “ethical case” for equal rates would still do so if, as above, it were revenue reducing?

So much for ethics, eh?

All economics is just footnotes to Adam Smith - or wrong

Adam Smith goes to great lengths to point out that - other things like amount of capital, level of technology etc being equal - the jobs people enjoy doing more pay less cash money than the jobs people enjoy doing less:

The whole of the advantages and disadvantages of the different employments of labour and stock must, in the same neighbourhood, be either perfectly equal or continually tending to equality. If in the same neighbourhood, there was any employment evidently either more or less advantageous than the rest, so many people would crowd into it in the one case, and so many would desert it in the other, that its advantages would soon return to the level of other employments. This at least would be the case in a society where things were left to follow their natural course, where there was perfect liberty, and where every man was perfectly free both to chuse what occupation he thought proper, and to change it as often as he thought proper. Every man’s interest would prompt him to seek the advantageous, and to shun the disadvantageous employment.

As ever, many pages of 18th century prose to explain further.

In the newspaper:

I earn around £50,000. It’s a good salary and I have a comfortable life but I don’t think vets are well paid when you consider the amount of training we go through, the cost of that training, the hours we work, the stress and dedication that goes into the job – particularly when you compare us to similar professions such as dentists and doctors who can expect a much larger salary.

What bothers me the most is the public’s misconception of how well we are paid. I think a lot of people think vets are paid more than we are. If I told certain friends and family what I am paid, they would be shocked.

Sometimes angry clients will say, “you’re only in it for the money, you don’t care about my animal,” and that is a hurtful comment. Veterinary teams are made up of highly qualified and intelligent people and if we wanted to earn more money, we would be doing something else. We are all in it because we love animals and we really care about pet owners.

This is, of course, one of those footnotes to Smith.

The total pay for a job is the compensation and doing something you love - as we here know very well - is one of those compensations of a job.

This is not, in fact, science, it’s political wishing

Some climate change news:

The world has enough fossil fuel projects planned to meet global energy demand forecasts to 2050 and governments should stop issuing new oil, gas and coal licences, according to a large study aimed at political leaders.

If governments deliver the changes promised in order to keep the world from breaching its climate targets no new fossil fuel projects will be needed, researchers at University College London and the International Institute for Sustainable Development (IISD) said on Thursday.

No new fossil fuels required being predicated on government projects coming in on time. That’s, umm, useful.

Dr Steve Pye, a co-author of the report from the UCL Energy Institute, said: “Importantly, our research establishes that there is a rigorous scientific basis for the proposed norm by showing that there is no need for new fossil fuel projects.”

“The clarity that this norm brings should help focus policy on targeting the required ambitious scaling of renewable and clean energy investment, whilst managing the decline of fossil fuel infrastructure in an equitable and just way,” Pye said.

As we say, that’s not science, that’s political wishing. If governments do such and such on time then governments can also do this other thing. There’s an awful lot resting upon that “on time” qualification to government action.

As far as we know there has been only one British Government major engineering or infrastructure project that came in under or on time. That was Polaris and that was bought off the shelf from the Americans.

The “if therefore” logic being used here makes us think that rather more fossil fuel projects should be approved in fact. For what does happen in 2049 if the Minister has to start saying there’s been a bit of slippage here and there?